The fair value of our derivative contracts is classified as Level 3 based on the significant unobservable inputs into our expected present value model.
The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during the first quarter of 2009 (in thousands):

Gas Fixed-PricePhysicalU.S.

Gas PriceCollarU.S.

Oil PutU.S.

FinancialGas SwapU.K.

Gas PriceCollarU.K.

Total

Balance at beginning of period

$

15,366

$



$



$

(8,361

)

$



$

7,005

Total gain included in other comprehensive income







5,500



5,500

Derivative income (expense)

14,202

(803

)

(1,232

)

6,232

(2,209

)

16,190

Settlements, terminations and purchases

(10,073

)



1,740

(3,331

)



(11,664

)

Balance at end of period

$

19,495

$

(803

)

$

508

$

40

$

(2,209

)

$

17,031

Changes in unrealized income (loss) included in derivative income relating to derivatives still held at March 31, 2009

We adopted SFAS No. 157, Fair Value Measurements, effective January 1, 2008 for financial assets and liabilities measured on
a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires
fair value measurements be classified and disclosed in one of the following categories:

Level 1:

Measured based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Measured based on quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This
category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable
data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little
or no market activity). Our option pricing models are industry-standard and consider various inputs including forward commodity price estimates, volatility and time value of money.

Financial assets and liabilities are classified based on the lowest level input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and determines the valuation of the fair value of assets and liabilities and their placement within
the fair value hierarchy levels.

The fair value of the gas swap-U.K. and gas fixed-price physical contracts is classified as Level 3 based
on the significant unobservable inputs into our expected present value model. The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during 2008 (in thousands):

FinancialGas SwapU.K.

Gas Fixed-Price PhysicalU.S.

Gas Fixed-Price PhysicalU.K.

Total

Balance at beginning of year

$

(24,577

)

$



$



$

(24,577

)

Total loss included in other comprehensive income

(1,058

)





(1,058

)

Derivative income (expense)

5,078

15,366

(947

)

19,497

Settlements

12,196





12,196

Balance at December 31, 2008

$

(8,361

)

$

15,366

$

(947

)

$

6,058

Changes in unrealized income (loss) included in earnings relating to derivatives still held at December 31, 2008

$

6,953

$

15,366

$

(947

)

$

21,372

Note 14  Fair Value Measurements

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">We adopted SFAS No. 157, Fair Value Measurements, effective January 1, 2008 for financial assets and liabilities measured ona recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requiresfair value measurements be classified and disclosed in one of the following categories:

Level 1:

Measured based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Measured based on quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. Thiscategory includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observabledata, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by littleor no market activity). Our option pricing models are industry-standard and consider various inputs including forward commodity price estimates, volatility and time value of money.

Financial assets and liabilities are classified based on the lowest level input that issignificant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and determines the valuation of the fair value of assets and liabilities and their placement withinthe fair value hierarchy levels.

The fair value of the gas swap-U.K. and gas fixed-price physical contracts is classified as Level 3 basedon the significant unobservable inputs into our expected present value model. The following table sets forth a reconciliation of changes in the fair value of these financial assets (liabilities) during 2008 (in thousands):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">

FinancialGas SwapU.K.

Gas Fixed-Price PhysicalU.S.

Gas Fixed-Price PhysicalU.K.

Total

Balance at beginning of year

$

(24,577

)

$



$



$

(24,577

)

Total loss included in other comprehensive income

(1,058

)





(1,058

)

Derivative income (expense)

5,078

15,366

(947

)

19,497

Settlements

12,196





12,196

Balance at December 31, 2008

$

(8,361

)

$

15,366

$

(947

)

$

6,058

Changes in unrealized income (loss) included in earnings relating to derivatives still held at December 31, 2008

We adopted SFAS No. 157, Fair Value Measurements, effective January 1, 2008 for financial assets and liabilities measured on a
recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. In February 2008, the FASB issued FSP No. 157-2, which delayed the effective date of SFAS
No. 157 by one year for nonfinancial assets and liabilities, except those measured on a recurring basis. We will adopt SFAS No. 157 with respect to asset retirement obligations and non-recurring impairments of oil and gas properties in the
first quarter of 2009. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 establishes a
framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1:

Measured based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Measured based on quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This
category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable
data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little
or no market activity). Our option pricing models are industry-standard and consider various inputs including forward commodity price estimates, volatility and time value of money.

Financial assets and liabilities are classified based on the lowest level input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and determines the valuation of the fair value of assets and liabilities and their placement within
the fair value hierarchy levels. The following table summarizes, according to their inputs, financial assets and liabilities that are being measured on a fair value basis at September 30, 2008 (in thousands):